IMF raises global growth prospects, and other economics news to read this week

Top economy stories: IMF increases outlook for global GDP in 2023; ECB and Fed raise interest rates; US GDP shows stronger growth in Q2 than expected.
Top economy stories: IMF increases outlook for global GDP in 2023; ECB and Fed raise interest rates; US GDP shows stronger growth in Q2 than expected.
Image: Unsplash/David Watkis
  • This weekly round-up brings you the latest stories from the world of economics and finance.
  • Top economy stories: IMF increases outlook for global GDP in 2023; ECB and Fed raise interest rates; US GDP shows stronger growth in Q2 than expected.

1. IMF raises prospects for the global economy

The International Monetary Fund (IMF) has slightly raised its global GDP growth estimates for 2023. However, it continues to warn about persistent challenges over the medium term.

The IMF's latest World Economic Outlook points to reduced inflation as a factor in the improved outlook for 2023, but has kept its 2024 forecast unchanged – both now stand at 3% growth. That's a 0.2 percentage point rise on its April forecast for this year.

The global economic outlook
The IMF has raised its economic forecasts slightly for 2023.

"We're on track, but we're not out of the woods," IMF Chief Economist Pierre-Olivier Gourinchas told Reuters, adding that the upgraded outlook is driven largely by first-quarter results. "What we are seeing when we look five years out is actually close to 3.0%, maybe a little bit above 3.0%. This is a significant slowdown compared to what we had pre-COVID."

The IMF forecasts that global headline inflation will drop to 6.8% this year, down from 8.7% last year. And it predicts a further fall to 5.2% next year. However, core inflation is likely to drop more slowly, with Gourinchas warning that it may not be until 2024 or early 2025 that inflation is back in line with national targets.

2. US Fed and European Central Bank raise rates

The US Federal Reserve and the European Central Bank (ECB) have both raised interest rates this week as they continue to try and tame inflation.

The Fed raised rates by a quarter of a percent – the 11th increase in its last 12 meetings. It means the benchmark overnight interest rate moves to the 5.25-5.50% range, a level last seen in 2007.

Fed Chair Jerome Powell said after the announcement that the bank's staff are no longer forecasting a US recession.

Meanwhile, the ECB raised rates for a ninth consecutive time this week. The ECB's deposit rate is now at 3.75% following the 25-basis-point increase. This is its highest level since 2000 – before the euro currency was even in circulation. The main refinancing rate is now at 4.25%.

However, there are signs of a potential pause in rate rises in September. "There is the possibility of a hike. There is the possibility of a pause. It's a decisive maybe," said ECB President Christine Lagarde.

3. News in brief: Stories on the economy from around the world

China's state planner plans to roll out measures to increase private investment in certain infrastructure sectors. It follows an earlier pledge to improve the private sector.

India is expected to have the world's highest GDP growth this year at 6.1%, according to a Reuters poll of economists. But its goal of being ranked as a developed nation requires 8% growth for the next 25 years.

The Russian Central Bank has increased its key interest rate by 100 basis points to 8.5%. The rise was higher than expected, reports Reuters.

Business activity in the US hit a five-month low in July, largely because of slowing service-sector growth. But data around falling input prices and slowing hiring suggest the Federal Reserve might be making progress in tackling inflation.

Business activity also shrank in the Eurozone by more than was expected, again as a result of declines in the bloc's service industry.

Second-quarter growth in South Korea was higher than expected, with GDP increasing by a seasonally adjusted 0.6% compared with the previous quarter.

US GDP grew at a 2.4% annualized rate in the second quarter, while inflation slowed. The increase in GDP was quicker than economists polled by Reuters had expected.

Major European banks have flagged the increased risk of bad loans as the global economy copes with slow growth and high inflation.

The Bank of Japan has increased the flexibility of its policy on yield curves and loosened its defence of a long-term cap on interest rates.

4. More on finance and the economy on Agenda

The first edition of the World Economic Forum's Global Risk Officers Outlook has identified the biggest risks to organizations worldwide. Macroeconomic indicators in a global economy struggling with sluggish growth are high on the list of talking points.

There is cause for optimism for the global economy though, writes IMF Chief Economist Pierre-Olivier Gourinchas, but "many challenges still cloud the horizon".

How can foreign direct investment (FDI) be aligned with climate goals? With climate FDI flows still below their potential, new work from the World Economic Forum hopes to help increase them.

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